UK:
FCA Asks Banks To Explain New Overdraft Rates
30 January 2020
Herbert Smith Freehills
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The FCA has today written to the UK's major retail banks, asking
them to provide evidence of how they have arrived at their new
overdraft interest rates, which have all been set at around 40%.
The FCA also asked the banks to clarify how they will deal with
customers who could be worse off following the changes, and expects
firms to take "positive steps" to helps these customers
– for example, by reducing or waiving interest, or offering a
continuation of overdraft borrowing at current rate of
interest.
The FCA's letter comes after it introduced wide-spread
reforms to the "dysfunctional" overdraft market to end
harmful unarranged overdraft charges. From April this year, firms
are required to charge a simple annual interest rate, without
additional charges for using an overdraft.
Today's letter is perhaps an acknowledgement from the FCA
that its overdraft changes have not been implemented quite as
expected, and a warning to banks that the FCA will be "keeping
a close eye on the market" and will take action should it
"see continued harm". The banks have until 10 February to
voluntarily respond to the FCA's letter, following which we
should expect more communications and possibly further action from
the FCA.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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